FT: The Scandal at the Vatican Bank

Author: Rachel Sanderson
December 9, 2013

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"After a decade of paedophilia scandals, the allegations of financial impropriety seemed set to unleash another storm of criticism and had to be addressed. Outside auditors as well as financial risk consultants were already coming into the Vatican but the arrest of Scarano made the case for reform unavoidable. "We cannot have any more scandal. It is so shameful," a senior member of the Vatican's financial administration said."

On June 28 this year, Italian police arrested a silver-haired priest, Monsignor Nunzio Scarano, in Rome. The cleric, nicknamed Monsignor Cinquecento after the €500 bills he habitually carried around with him, was charged with fraud and corruption, together with a former secret service agent and a ­financial broker. All three were suspected of attempting to smuggle €20m by private plane across the border from Switzerland.

Prosecutors alleged that the priest, a former banker, was using the Institute for Religious Works – the formal name for the Vatican's bank – to move money for businessmen based in the Naples region, widely regarded in Italy as a haven of organised crime. Worse still, Scarano (who, together with the other men, has denied any wrongdoing) had until only a month earlier been head of the accounting department at the Administration of the Patrimony of the Apostolic See, the treasury of the Vatican.

The arrest, and the headlines that screamed across the Italian press, was the latest shock for the Holy See. The year had already witnessed an emotional upheaval in the church with the resignation in February of the aged Pope Benedict XVI – the first time in 700 years a pope had stepped down voluntarily. But this new crisis demanded cold, hard resolve. For regulators and politicians in Europe who had pushed for change in the Vatican's scandal-plagued bank over the previous four years – from the Bank of Italy under Mario Draghi to officials in Mario Monti's government and in Brussels – it served as evidence of their concerns. Those worries also jolted a number of international financiers determined to press for reform.

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